Nidec, a leading producer of precision motors, expects to spend about 100 billion yen ($893 million) to purchase Omron Automotive Electronics, turning the company into a wholly owned subsidiary. The deal is slated to close at the end of October. Producing motor control systems and automotive sensors, the Omron unit generated sales of 133.2 billion yen in fiscal 2017.
With demand growing for the technology behind electrified vehicles and self-driving cars, Nidec sees the acquisition spurring the development of necessary components and modules as competition intensifies both at home and abroad.
Nidec is a global leader in driving motors that power electric vehicles, yet a shortage of engineers had been a concern.
"We don't have enough engineers," Nidec Chairman and CEO Shigenobu Nagamori told reporters Tuesday. "At this rate, we will cause problems for our clients" eventually due to supply delays.
But Omron's 600 engineers "give rise to major synergies" for Nidec, said Nagamori. "We can demonstrate cost competition and other strengths. There are also no overlaps in operational locations."
Nidec can boost cost competitiveness by bundling motor control systems with associated components and software.
"We've hit a ceiling in selling standalone products," Nagamori said. "We can't be competitive without moving to modules."
"The added value of motor control technology is high," he said. "If the entire motor is worth 10,000 yen, then the control circuit component alone is worth 6,000 yen."
The acquisition will help Nidec achieve its sales goal of 2 trillion yen by fiscal 2020, more than 30% higher than fiscal 2017's top-line number. The Kyoto manufacturer aims to double the sales from onboard devices, including those for electric vehicles, to 600 billion yen by March 2021.
The production of electric vehicles increasingly relies on bundled components that are assembled into whole automobiles. Nagamori cites China as a hot spot for EV makers who might lack the know-how to produce such autos from scratch.
"Chinese [automakers] especially do not have the technology," he said. "We get asked to bring things that can be installed to turn an auto into an electrified vehicle."
"We have no intention to produce complete vehicles, but [modules are] necessary to deal with that transformation," Nagamori continued. "We're entering into a type of solution business."
In China, Nidec received the most orders for onboard vehicle motors, said Koichiro Hagiwara, senior analyst at Tokai Tokyo Research Center.
"If EVs continue to penetrate rapidly, Nidec's global share could rise even further," Hagiwara said.
Nidec sees synergies in sensors as well. The company already is strong in onboard cameras that detect objects nearby and wave radars that can detect obstacles farther away. Omron Automotive Electronics specializes in laser radars that check nearby surroundings.
The technologies can be combined to offer improved safety features for clients, Nidec reasons. The accuracy of onboard cameras can be undermined by backlight, fog and darkness. Laser radars are usually employed to compensate for those shortcomings.
Nidec bundles those features into advanced driver assistance systems, an area likely to enjoy growing demand since the systems are vital to self-driving technology. The market for sensors and similar innovations will reach 3.27 trillion yen in 2030, Yano Research Institute in Tokyo estimates, more than tripling in scale from 2017.
Despite the sector's potential, Omron is offloading the automotive unit to focus resources on factory automation and the health care field. The parent also thinks competition in automotive devices will grow stronger in the future.
"It will require investment on a scale different from before," a company official said.
Nidec has waded deeper into the automotive industry since at least 2006, when it agreed to buy the in-car motor and actuator business of France's Valeo. Now the Japanese company seeks to provide electric vehicle platforms -- components that combine drive units, batteries and chassis -- by the year 2025.
Nidec estimates demand for platforms will come primarily from Chinese electric vehicle startups. "We aim for 1 trillion yen in sales by fiscal 2030," an executive said.